Cass Information Systems(CASS) - 2025 Q2 - Quarterly Report

PART I – Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements and comprehensive notes for Cass Information Systems, Inc. and its subsidiaries Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | Assets | | | | Cash and cash equivalents | $218,165 | $349,728 | | Investment securities available-for-sale, at fair value | $599,541 | $528,021 | | Loans, net | $1,102,708 | $1,068,594 | | Total assets | $2,316,018 | $2,395,081 | | Liabilities | | | | Total deposits | $1,003,795 | $967,916 | | Accounts and drafts payable | $1,036,795 | $1,129,610 | | Total liabilities | $2,075,196 | $2,166,051 | | Shareholders' Equity | | | | Total shareholders' equity | $240,822 | $229,030 | | Total liabilities and shareholders' equity | $2,316,018 | $2,395,081 | - Total assets decreased by $79.1 million (3.3%) from December 31, 2024, to June 30, 2025, primarily due to a decrease in cash and cash equivalents and accounts and drafts payable, partially offset by increases in investment securities and loans[14][146][152] Consolidated Statements of Income This section details the company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Income (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total fee revenue and other income | $24,948 | $28,448 | $52,986 | $57,172 | | Total interest income | $23,639 | $21,241 | $47,028 | $42,895 | | Total interest expense | $4,164 | $5,312 | $8,280 | $10,490 | | Net interest income | $19,475 | $15,929 | $38,748 | $32,405 | | Total net revenue | $44,398 | $43,977 | $90,804 | $89,082 | | Total operating expense | $38,119 | $38,409 | $73,649 | $74,617 | | Net income from continuing operations | $5,160 | $4,308 | $13,710 | $11,372 | | Income from discontinued operations, net of tax | $3,695 | $176 | $4,111 | $264 | | Net income | $8,855 | $4,484 | $17,821 | $11,636 | | Basic earnings per share | $0.67 | $0.33 | $1.34 | $0.86 | | Diluted earnings per share | $0.66 | $0.32 | $1.31 | $0.84 | - Net income for Q2 2025 increased by 97.5% to $8.9 million, and diluted EPS increased by 106.3% to $0.66, primarily driven by a gain on the sale of the TEM business and increased net interest income[16][97] - For the first half of 2025, net income rose by 53.2% to $17.8 million, and diluted EPS increased by 56.0% to $1.31, also benefiting from the TEM business sale and improved net interest income[16][99] Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income items, reflecting total non-owner changes in equity Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $8,855 | $4,484 | $17,821 | $11,636 | | Net unrealized gain (loss) on securities available-for-sale (net of tax) | $3,825 | ($450) | $9,344 | ($2,047) | | Reclassification adjustments for losses included in net income (net of tax) | $2,711 | $10 | $2,725 | $10 | | Foreign currency translation adjustments | $303 | ($42) | $444 | ($132) | | Total comprehensive income | $15,694 | $4,002 | $30,334 | $9,467 | - Total comprehensive income significantly increased to $15.7 million for Q2 2025 (from $4.0 million in Q2 2024) and $30.3 million for H1 2025 (from $9.5 million in H1 2024), primarily due to net income growth and a substantial net unrealized gain on available-for-sale securities[18] Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $20,274 | $20,517 | | Net cash (used in) provided by investing activities | ($50,137) | $12,553 | | Net cash used in financing activities | ($101,700) | ($181,811) | | Net decrease in cash and cash equivalents | ($131,563) | ($148,741) | | Cash and cash equivalents at end of period | $218,165 | $223,727 | - Net cash provided by operating activities remained stable at $20.3 million for H1 2025. Investing activities shifted from a net inflow of $12.6 million in H1 2024 to a net outflow of $50.1 million in H1 2025, largely due to increased purchases of investment securities and net increase in loans[20][159] - Net cash used in financing activities decreased from $181.8 million in H1 2024 to $101.7 million in H1 2025, primarily due to a net increase in noninterest-bearing demand deposits and a smaller decrease in accounts and drafts payable[20] Consolidated Statements of Shareholders' Equity This section details changes in the company's equity accounts, including net income, dividends, and share repurchases Consolidated Statements of Shareholders' Equity (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Total Shareholders' Equity | $240,822 | $229,030 | | Net income | $17,821 | N/A | | Cash dividends | ($8,303) | N/A | | Purchase of common shares for treasury | ($10,996) | N/A | | Other comprehensive gain | $12,513 | N/A | - Total shareholders' equity increased by $11.8 million to $240.8 million at June 30, 2025, driven by net income of $17.8 million and a $12.5 million decrease in accumulated other comprehensive loss, partially offset by $11.0 million in share repurchases and $8.3 million in dividends[25][153] Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements Note 1 - Basis of Presentation This note describes the accounting principles and conventions used in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, including normal recurring accruals. Certain prior-period amounts have been reclassified without affecting net income or shareholders' equity[28] Note 2 - Discontinued Operations and Assets and Liabilities Held for Sale This note details the financial impact and classification of business units sold or held for sale - On April 7, 2025, the Company signed an Asset Purchase Agreement to sell its telecom expense management and managed mobility solutions business unit (TEM Business Unit) to Asignet USA Inc for $18.0 million, with the sale closing on June 30, 2025[29] - The sale of the TEM Business Unit, which is part of the Information Services segment, is treated as a discontinued operation, representing a strategic shift for the Company[30] Assets and Liabilities of Discontinued Operations (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Assets of discontinued operations | $0 | $14,413 | | Liabilities of discontinued operations | $0 | $22,314 | Net Income from Discontinued Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income from discontinued operations | $3,695 | $176 | $4,111 | $264 | | Gain on sale of TEM business | $3,550 | $0 | $3,550 | $0 | Note 3 – Intangible Assets This note provides information on the company's goodwill and other intangible assets, including amortization policies - Intangible assets with finite useful lives are amortized over 3 to 20 years, while goodwill is tested annually for impairment[33] Intangible Assets (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Goodwill | $16,164 | $16,333 | | Other intangible assets, net | $4,329 | $4,914 | | Total intangible assets (gross carrying amount) | $28,264 | $28,432 | | Amortization of intangible assets (3 months) | $293 | $173 | | Amortization of intangible assets (6 months) | $586 | $346 | - Estimated annual amortization of intangibles is projected to be $1.2 million in 2025, $1.1 million in 2026, $738,000 in 2027, $730,000 in 2028, and $699,000 in 2029[34] Note 4 – Earnings Per Share This note presents the basic and diluted earnings per share calculations for continuing and discontinued operations Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS from continuing operations | $0.39 | $0.32 | $1.03 | $0.84 | | Basic EPS from discontinued operations | $0.28 | $0.01 | $0.31 | $0.02 | | Basic EPS | $0.67 | $0.33 | $1.34 | $0.86 | | Diluted EPS from continuing operations | $0.38 | $0.31 | $1.01 | $0.82 | | Diluted EPS from discontinued operations | $0.28 | $0.01 | $0.30 | $0.02 | | Diluted EPS | $0.66 | $0.32 | $1.31 | $0.84 | | Weighted-average common shares outstanding (basic) | 13,269,415 | 13,538,283 | 13,333,443 | 13,534,256 | | Weighted-average common shares outstanding (diluted) | 13,517,579 | 13,822,076 | 13,580,081 | 13,803,677 | Note 5 – Stock Repurchases This note details the company's common stock repurchase activities and new authorization programs - The Company repurchased 140,269 shares during Q2 2025 and 256,378 shares during H1 2025 under its treasury stock buyback program[36] - On July 15, 2025, the Board of Directors authorized a new repurchase program for up to 500,000 shares, replacing the October 2023 authorization[36] Note 6 – Industry Segment Information This note provides financial data broken down by the company's operating segments: Information Services and Banking Services - The Company operates in two reportable segments: Information Services (transportation, energy, telecom, environmental invoice processing, church management software) and Banking Services (banking services to businesses, restaurants, faith-based ministries, and support for Information Services)[37][38] Pre-tax income from continuing operations (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Information Services | $3,764 | $2,950 | $10,254 | $8,446 | | Banking Services | $5,433 | $1,902 | $8,914 | $4,077 | | Total | $6,279 | $5,568 | $17,155 | $14,465 | Average funding sources (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Information Services | $1,339,550 | $1,235,016 | $1,338,846 | $1,264,432 | | Banking Services | $766,622 | $785,893 | $766,947 | $792,816 | | Total | $2,106,172 | $2,020,909 | $2,105,793 | $2,057,248 | Note 7 – Loans by Type This note categorizes the company's loan portfolio and details the allowance for credit losses Loans by Type (in thousands) | Loan Type (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Commercial and industrial | $583,582 | $559,262 | | Real estate: Commercial Mortgage | $113,385 | $119,194 | | Real estate: Commercial Construction | $9,132 | $9,134 | | Real estate: Faith-based Mortgage | $388,268 | $368,881 | | Real estate: Faith-based Construction | $22,637 | $25,518 | | Total loans | $1,117,004 | $1,081,989 | - Total loans increased by $35.0 million (3.2%) from December 31, 2024, to June 30, 2025, primarily driven by growth in commercial and industrial and faith-based mortgage portfolios[47][148] - At June 30, 2025, there were two non-accrual loans totaling $3.4 million, with a specific allowance for credit losses of $160,000. There were no non-accrual loans at December 31, 2024[48][54] Allowance for Credit Losses (ACL) Activity (in thousands) | Category | Balance at Jan 1, 2024 | Provision for credit losses (2024) | Balance at Dec 31, 2024 | Provision for credit losses (H1 2025) | Balance at June 30, 2025 | | :-------------------- | :--------------------- | :--------------------------------- | :---------------------- | :------------------------------------ | :----------------------- | | C&I | $5,412 | $485 | $5,897 | $539 | $6,436 | | CRE | $1,093 | ($70) | $1,023 | $126 | $1,149 | | Faith-based CRE | $6,476 | ($218) | $6,258 | $231 | $6,489 | | Construction | $108 | $109 | $217 | $5 | $222 | | Total | $13,089 | $306 | $13,395 | $901 | $14,296 | Note 8 – Commitments and Contingencies This note outlines the company's unfunded commitments, letters of credit, and potential legal liabilities - At June 30, 2025, unfunded commitments were $172.5 million, standby letters of credit were $12.4 million, and commercial letters of credit were $1.4 million[57] - The Company recorded a bad debt recovery of $2.0 million in H1 2025 from a settlement with Rubicon Technologies, Inc., which also included a $5.0 million promissory note maturing July 1, 2029[59] Note 9 – Share-Based Compensation This note details the expense recognized for share-based awards and unrecognized compensation costs - Share-based compensation expense was $918,000 for Q2 2025 and $2.2 million for H1 2025, compared to $450,000 and $1.6 million for the respective periods in 2024[60] - As of June 30, 2025, total unrecognized compensation expense for non-vested restricted shares was $2.8 million, expected to be recognized over approximately 0.71 years[62] - Performance-based restricted stock (PBRS) vesting for the 2022-2024 period was based on 99.1% achievement of target financial goals, resulting in the issuance of 55,348 common shares[65] Note 10 – Defined Pension Plans This note provides information on the costs associated with the company's defined-benefit pension and supplemental executive retirement plans - The Company recorded no net periodic pension cost for Q2 and H1 2025 related to its terminated defined-benefit pension plan, compared to $191,000 and $386,000 for the same periods in 2024[66] - SERP cost recorded to expense was $112,000 for Q2 2025 and $225,000 for H1 2025, consistent with the prior year[67] Note 11 – Income Taxes This note presents the effective tax rates and factors causing differences from the statutory federal income tax rate Effective Tax Rate for Continuing Operations | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Effective tax rate for continuing operations | 17.8% | 22.6% | 20.1% | 21.4% | - The effective tax rate differs from the statutory rate of 21% primarily due to state income taxes, tax-exempt interest from municipal bonds and bank-owned life insurance, and other factors[68] Note 12 – Investment Securities This note details the company's investment securities portfolio, including amortized cost, fair value, and unrealized gains/losses Investment Securities (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Total amortized cost | $643,388 | $587,708 | | Total fair value | $599,541 | $528,021 | | Gross unrealized gains | $1,585 | $18 | | Gross unrealized losses | ($45,432) | ($59,705) | - At June 30, 2025, 219 investment securities (81.4%) were in an unrealized loss position, primarily due to changes in market interest rates. The Company does not intend to sell these securities before recovery of amortized cost[70] - Proceeds from sales of available-for-sale investment securities were $30.1 million for Q2 2025 and $53.1 million for H1 2025, resulting in gross realized losses of $3.6 million for both periods[72] Note 13 – Fair Value of Financial Instruments This note provides fair value measurements for various financial instruments, categorized by valuation input levels Fair Value of Financial Instruments (in thousands) | Metric (in thousands) | June 30, 2025 Carrying Amount | June 30, 2025 Fair Value | December 31, 2024 Carrying Amount | December 31, 2024 Fair Value | | :------------------------------------ | :------------------------------ | :----------------------- | :-------------------------------- | :--------------------------- | | Cash and cash equivalents | $218,165 | $218,165 | $349,728 | $349,728 | | Investment securities | $599,541 | $599,541 | $528,021 | $528,021 | | Loans, net | $1,102,708 | $1,086,635 | $1,068,594 | $1,046,406 | | Deposits | $1,003,795 | $1,003,795 | $967,916 | $967,916 | | Accounts and drafts payable | $1,036,795 | $1,036,795 | $1,129,610 | $1,129,610 | - Fair values for investment securities are measured using Level 2 inputs, while loans are estimated using Level 3 valuations based on discounted future cash flows at risk-adjusted interest rates[74][75] Note 14 – Revenue from Contracts with Customers This note explains the company's revenue recognition policies and disaggregates revenue by stream - Revenue is recognized when performance obligations are satisfied, including processing fees (per-item or monthly), financial fees (transaction-level for payments), and bank service fees (transaction-based on deposit accounts)[77][78][79] Revenue Stream (in thousands) | Revenue Stream (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Processing fees | $17,082 | $16,816 | $33,551 | $33,675 | | Financial fees | $10,161 | $10,460 | $20,122 | $21,058 | | Bank service fees | $350 | $320 | $686 | $601 | | Total fee revenue (in-scope of FASB ASC 606) | $27,593 | $27,596 | $54,359 | $55,334 | Note 15 – Leases This note provides information on the company's operating lease liabilities, right-of-use assets, and associated costs - As of June 30, 2025, the Company had lease liabilities of $4.9 million and right-of-use assets of $4.7 million for operating leases[82] - Operating lease cost was $214,000 for Q2 2025 and $428,000 for H1 2025. The weighted-average remaining lease term was 6.6 years, and the weighted-average discount rate was 2.75%[82] Note 16 – Subsequent Events This note discloses any significant events occurring after the balance sheet date that require reporting - No other events requiring additional disclosures were identified after the consolidated balance sheet date of June 30, 2025[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operational results, covering revenue, expenses, liquidity, and critical accounting policies Overview This section provides a general description of the company's business model and primary service offerings - Cass Information Systems provides payment and information processing services to large enterprises, including freight, facility invoice processing, and B2B payment platforms. Its bank subsidiary, Cass Commercial Bank, supports payment operations and offers banking services to privately held businesses, franchise restaurants, and faith-based ministries[86] - Revenue is primarily generated from service fees, transactional payment services, and investment of account balances, with net interest income being a significant source for the Bank[87] Recent Industry Developments This section highlights current trends and changes within the company's operating industries - Freight rates are gradually increasing after declines since 2023, but volumes continue to decrease year-over-year, impacting transportation-related processing fees[89] - Carrier consolidation, with smaller trucking companies exiting or selling, is putting downward pressure on financial fees, as these smaller companies were significant users of quick pay solutions[89] Recent Items of Note This section outlines significant financial events and strategic actions undertaken by the company - Net interest income increased by $3.5 million (22.3%) due to an improved net interest margin (3.78% vs. 3.32%) and a 6.7% increase in average interest-earning assets[90] - The Company sold its telecom expense management (TEM) business unit for $18.0 million, resulting in a $3.6 million gain on sale[91] - The Company sold $34.0 million of corporate investment securities at a pre-tax loss of $3.6 million to reposition the portfolio for higher yields and improved net interest margin[92] - The recently signed One Big Beautiful Bill Act, making changes to tax law regarding interest expense deductibility, R&E expenses, and accelerated depreciation, is being analyzed for its potential impact on future income tax expense[93] Results of Operations This section summarizes the company's financial performance, including revenue, expenses, and net income Summary of Operating Results (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :------------------------------------ | :------ | :------ | :------------- | :------ | :------ | :------------- | | Total net revenue | $44,398 | $43,977 | 1.0% | $90,804 | $89,082 | 1.9% | | Operating expense | $38,119 | $38,409 | (0.8)% | $73,649 | $74,617 | (1.3)% | | Net income from continuing operations | $5,160 | $4,308 | 19.8% | $13,710 | $11,372 | 20.6% | | Net income from discontinued operations | $3,695 | $176 | 1,999.4% | $4,111 | $264 | 1,457.2% | | Net income | $8,855 | $4,484 | 97.5% | $17,821 | $11,636 | 53.2% | | Diluted earnings per share | $0.66 | $0.32 | 106.3% | $1.31 | $0.84 | 56.0% | | Return on average assets | 1.48% | 0.78% | 89.7% | 1.49% | 1.00% | 49.0% | | Return on average equity | 15.35% | 8.01% | 91.6% | 15.62% | 10.36% | 50.8% | - Q2 2025 net revenue increased 1.0% to $44.4 million, driven by net interest income, partially offset by investment securities losses. Operating expense decreased 0.8% due to lower bad debt expense and late fees[96] - H1 2025 net revenue increased 1.9% to $90.8 million, also driven by net interest income. Operating expense decreased 1.3% due to a bad debt recovery from a litigation settlement[99] Fee Revenue and Other Income This section analyzes the components of non-interest revenue, including processing and financial fees Fee Revenue and Other Income (in thousands) | Metric | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :------------------------------------ | :------ | :------ | :------------- | :------ | :------ | :------------- | | Processing fees | $17,082 | $16,816 | 1.6% | $33,551 | $33,675 | (0.4)% | | Financial fees | $10,161 | $10,460 | (2.9)% | $20,122 | $21,058 | (4.4)% | | Other fees | $1,263 | $1,185 | 6.6% | $2,889 | $2,452 | 17.8% | | Loss on sale of investment securities | ($3,558) | ($13) | N/M | ($3,576) | ($13) | N/M | | Transportation invoice volume (000s) | 8,837 | 8,879 | (0.5)% | 17,192 | 17,649 | (2.6)% | | Facility-related transaction volume (000s) | 4,141 | 4,197 | (1.3)% | 8,366 | 8,311 | 0.7% | | Average payments in advance of funding (000s) | $176,191 | $213,185 | (17.4)% | $174,898 | $203,761 | (14.2)% | - Processing fees increased 1.6% in Q2 2025 due to flat transportation and facility transaction volumes. Financial fees decreased 2.9% in Q2 2025, primarily due to a 17.4% decline in average payments in advance of funding[103] - The Company incurred a $3.6 million loss on the sale of $34.0 million of corporate investment securities in Q2 2025, aiming to redeploy proceeds into higher-yielding assets[104] Net Interest Income This section examines the difference between interest earned on assets and interest paid on liabilities Net Interest Income and Related Factors (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Average earning assets | $2,090,366 | $1,958,427 | $2,097,445 | $2,010,833 | | Average interest-bearing liabilities | $615,932 | $638,339 | $622,045 | $634,986 | | Net interest income (tax-equivalent) | $19,690 | $16,168 | $39,132 | $32,888 | | Net interest margin (tax-equivalent) | 3.78% | 3.32% | 3.76% | 3.29% | | Yield on earning assets (tax-equivalent) | 4.58% | 4.41% | 4.56% | 4.34% | | Cost of interest-bearing liabilities | 2.71% | 3.35% | 2.68% | 3.32% | - Net interest income increased by $3.5 million (QoQ) and $6.2 million (YoY) due to an improved net interest margin and growth in average earning assets. The net interest margin improved to 3.78% in Q2 2025 and 3.76% in H1 2025[107][114][128][130] - Average loans increased by 8.3% in Q2 2025 and 8.7% in H1 2025, primarily in commercial and industrial and faith-based portfolios, with average loan yields increasing due to current market rates and re-pricing[108][115] - The cost of interest-bearing liabilities decreased by 64 basis points in both Q2 and H1 2025, primarily due to reductions in short-term interest rates in late 2024[107][112][114][118] Provision and Allowance for Credit Losses and Allowance for Unfunded Commitments This section discusses the company's reserves for potential loan losses and off-balance sheet credit exposures Provision for Credit Losses (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Provision for credit losses | $10 | $335 | $901 | $545 | | Provision for (release of) unfunded commitments | $15 | $65 | $29 | ($50) | | Total provision for credit losses and off-balance sheet credit exposures | $25 | $400 | $930 | $495 | - The allowance for credit losses (ACL) was $14.3 million at June 30, 2025, representing 1.28% of outstanding loans, up from $13.4 million (1.24%) at December 31, 2024[133][136] - The provision for credit losses in Q2 2025 was driven by an increase in nonaccrual loans of $3.4 million, partially offset by a decrease in total loans[132] Operating Expenses This section details the various costs incurred in the company's day-to-day operations Operating Expenses (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Personnel | $27,752 | $26,244 | $55,031 | $53,151 | | Occupancy | $669 | $641 | $1,390 | $1,317 | | Equipment | $2,562 | $1,936 | $4,856 | $3,767 | | Bad debt expense (recovery) | $0 | $1,288 | ($2,000) | $1,288 | | Amortization of intangible assets | $293 | $173 | $586 | $346 | | Other operating expense | $6,843 | $8,127 | $13,786 | $14,748 | | Total operating expense | $38,119 | $38,409 | $73,649 | $74,617 | - Total operating expenses decreased by 0.8% in Q2 2025 and 1.3% in H1 2025. Personnel expenses increased due to merit raises, the AcuAudit acquisition, and higher share-based compensation and profit sharing, partially offset by a decrease in FTEs[137][139][141] - Equipment expense increased due to depreciation on new software. A $2.0 million bad debt recovery in H1 2025 (vs. $1.3 million expense in H1 2024) significantly impacted operating expenses[140][142] Net Income from Discontinued Operations This section reports the financial results from business segments that have been sold or are held for sale Net Income from Discontinued Operations (in thousands) | Metric | Q2 2025 | Q2 2024 | % Change (QoQ) | H1 2025 | H1 2024 | % Change (YoY) | | :------------------------------------ | :------ | :------ | :------------- | :------ | :------ | :------------- | | Total revenues | $9,286 | $4,613 | 101.3% | $13,904 | $9,186 | 51.4% | | Operating expense | $4,359 | $4,385 | (0.6)% | $8,448 | $8,847 | (4.5)% | | Net income from discontinued operations | $3,695 | $176 | 1,999.4% | $4,111 | $265 | 1,451.3% | | Gain on sale of TEM business | $3,550 | $0 | 100.0% | $3,550 | $0 | 100.0% | - Net income from discontinued operations surged to $3.7 million in Q2 2025 and $4.1 million in H1 2025, primarily due to the $3.6 million gain on the sale of the TEM Business Unit and increased non-recurring fee income[144][145] Financial Condition This section assesses the company's overall financial health, including assets, liabilities, and equity - Total assets decreased by $79.1 million (3.3%) to $2.32 billion at June 30, 2025, from December 31, 2024[146] - Cash and cash equivalents decreased by $131.6 million (37.6%) to $218.2 million, while the investment securities portfolio increased by $71.5 million (13.5%) to $599.5 million[147][148] - Loans increased by $35.0 million (3.2%), and total deposits increased by $35.9 million (3.7%), primarily due to noninterest-bearing deposits. Accounts and drafts payable decreased by $92.8 million (8.2%)[148][150][151] - Total shareholders' equity increased by $11.8 million to $240.8 million, driven by net income and a decrease in accumulated other comprehensive loss, partially offset by share repurchases and dividends[153] Liquidity and Capital Resources This section evaluates the company's ability to meet short-term obligations and fund long-term growth - Cash and cash equivalents, the primary source of liquidity, totaled $218.2 million at June 30, 2025, representing 9.4% of total assets[155] - Secondary liquidity sources include an investment portfolio of $599.5 million and unsecured lines of credit at correspondent banks ($83.0 million), secured lines with the Federal Home Loan Bank ($228.5 million), and secured lines from three banks ($225.0 million). No amounts were outstanding on these lines[156][157] - The Company and its Bank subsidiary continue to exceed all regulatory capital requirements, with strong capital ratios across Total Capital, Common Equity Tier I, and Tier I Capital[165] Impact of New or Not Yet Adopted Accounting Pronouncements This section discusses the potential effects of recently issued or upcoming accounting standards - ASU 2023-06 (Disclosure Improvements) and ASU 2023-09 (Income Tax Disclosures) are not expected to have a significant impact on the Company's financial statements[166][169] - ASU 2023-07 (Segment Reporting), effective for fiscal years beginning after December 15, 2023, did not have a significant impact on the Company's financial statements[167][168] Critical Accounting Policies This section identifies accounting policies requiring significant judgment and estimation by management - The Allowance for Credit Losses (ACL) is identified as a critical accounting policy, requiring significant management estimates based on established methodologies, economic forecasts, qualitative risk factors, and loan volume[171] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risk, primarily interest rate risk, and how it is managed through gap analysis and a simulation model - The Company manages interest rate risk through gap analysis and a simulation model, with asset/liability management policies established and monitored by management[172] Simulated Changes in Net Interest Income (next 12 months) | Interest Rate Change | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | +200 basis points | 7.0% | 9.0% | | +100 basis points | 3.2% | 4.4% | | Flat rates | —% | —% | | -100 basis points | (0.2)% | 0.2% | | -200 basis points | (1.2)% | (1.3)% | - The Company is generally asset sensitive, meaning its net interest income is positively impacted by rising interest rates, as average interest-earning assets significantly exceed average interest-bearing liabilities[174] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports on the status of internal control over financial reporting - Management, under the supervision of the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[175] - There were no changes in the second quarter of 2025 that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[176] PART II – Other Information Item 1. Legal Proceedings This section states that the Company is involved in various legal actions and proceedings in the ordinary course of business, but management believes their outcome will not materially affect the Company's financial condition - Management believes that the outcome of all pending or threatened legal actions and proceedings will not have a material effect on the Company's businesses or financial conditions[177] Item 1A. Risk Factors This section refers to the Company's 2024 Form 10-K for a description of risks and uncertainties and confirms no material changes to these risk factors - There are no material changes to the Risk Factors as disclosed in the Company's 2024 Annual Report on Form 10-K[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the second quarter of 2025 under its publicly announced buyback program Common Stock Repurchases (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | April 1, 2025–April 30, 2025 | 41,666 | $41.04 | | May 1, 2025–May 31, 2025 | 64,344 | $42.61 | | June 1, 2025–June 30, 2025 | 35,172 | $42.85 | | Total | 141,182 | $42.20 | - Of the total shares purchased, 140,269 were under the publicly announced treasury stock buyback program, and 913 shares were transferred from employees for tax withholding[179] - A new authorization for up to 500,000 shares was approved on July 15, 2025, replacing the previous program[179] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[180] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[181] Item 5. Other Information This section confirms no material changes to procedures for recommending Board nominees and no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements adopted or terminated by officers or directors - No material changes to procedures for security holders to recommend nominees to the Board of Directors were implemented in Q2 2025[182] - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by officers or directors during Q2 2025[182] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including descriptions of the profit sharing program, certifications under Sarbanes-Oxley Act, and XBRL-related documents - Exhibits include the Description of Cass Information Systems, Inc. Profit Sharing Program, Certifications Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002, and various Inline XBRL Taxonomy Extension Documents[183][184][185] SIGNATURES This section contains the official attestations by the company's principal executive and financial officers - The report was signed on August 5, 2025, by Martin H. Resch, President and Chief Executive Officer, and Michael J. Normile, Executive Vice President and Chief Financial Officer[189]